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Australian housing loan arrears are creeping up again

Quinn-Rooney-GettyImages

The number of Australian homeowners in arrears on their home loan is rising, according to the latest data from credit rating agency Standard and Poor’s.

Using data collected from residential mortgage-backed securities to calculate the Standard & Poor’s Performance Index (SPIN), the level of arrears rose 6 basis points to 0.98% in December for “Prime” loans – the fully income verified mortgage most Australians take out – while non-conforming loan arrears jumped to 4.63% from 4.22%.

Residential mortgage backed securities are those securities issued by banks, and other lending institutions, on financial markets. They make up only a small percentage of total outstanding loans in Australia but are taken as representative of the overall health of the home loan market across the economy.

On that basis it seems clear that the overall level of arrears for “prime” loans throughout the economy is still relatively low compared to the recent 20-year peaks in 2011 and 2012. And that, for now at least, the downtrend in prime loan arrears since this peak remains intact.

Narelle Coneybeare, a credit analyst at Standard and Poor’s, said: “While most categories saw increases in arrears in December, the prime and nonconforming arrears remain lower than 12 months earlier.”

That’s a good sign for the economy. And a good sign for the performance of Australian banks.

But a breakdown of the data by institutional issuer showed some lingering post-GFC issues for Australia’s regional banks. The Standard and Poor’s data shows this subset of issuers continue to have a SPIN more than twice as high as the major banks.

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